The Cost

Representative A. Piatt Andrew, a Massachusetts Republican, questioned the statement of Secretary Mellon that a bonus would prevent reduction of taxation for many years. Mr. Andrew quoted the estimates of cost, prepared when the last bonus bill was before Congress, to show that the average cost for the first four years would be only $81,000,000 (TIME, Nov. 26).

Mr. Mellon replied by letter. He pointed out that there were three principal options, in the generally proposed bill, as to the form in which veterans might take their bonuses: 1) farm and home aid; 2) vocational training aid; 3) certificates, for later payment.

If all the veterans took one option, the cost would be for

1) Farm and home aid, total $2,068,662,903; average for the first four years, $475,000,000.

2) Vocational training, total $2,318,022,451; first year, $1,300,000,000; second year, $1,000,000,000.

3) Certificates, total $5,400,526,444; average for the first four years, $225,000,000.

He pointed out that in preparing the estimates of the cost of the earlier bill, Senator McCumber had assumed that 22 1/2% would take farm and home aid, 2 1/2% vocational training and 75% would take certificates. The Secretary declared that a proportion of 9%, 1% and 90%, respectively, was now believed more accurate.

On this basis the total cost of the bonus would be $5,085,833,687; the average for the first four years, $250,000,000; the average for the first 21 years (assuming that a sinking fund were established to meet the final payment of $2,885,786,816 due in 1944) would be $211,476,357.

He added concerning the much disputed subject of indirect costs: "You must add to the direct cost of $250,000,000 a year for the first four years of the bonus and the average of $211,000,000 per year for the first 20 years the enormous indirect cost to the Government. The bill gives the right in the first three years to borrow from the banks of the country and that this right would be exercised by the great majority of the certificate holders none denies. The consequent demand for credit would raise the interest rates which the Government as well as the general public will have to pay on borrowed money. At the same time the mere passage of the bill would depress the price of Government bonds and increase their basis of return. In such a money market the Government would have to take care of the $8,000,000,000 of its securities which mature within the next five years and to do so would, of course, have to meet the higher rate of interest. The continuing cost of an increase in interest rates on such a volume of refunding would be very large. The Government, like every other person in the United States, would also have to conduct its business at greatly increased expense, due to the higher price level generally which would inevitably follow the credit expansion and decreased production brought on by the bonus law. Soon the disturbance to business by this and other factors would reduce the income of the people and thus the Government's revenue, so that any estimated surplus would no longer exist and recourse would have to be had to additional taxes."